Digital transformation and risk of share price crash: Evidence from a new digital transformation index

Digital transformation has become a key initiative for firms’ sustainable development. Based on the annual reports of A-share listed companies, we use LDA model to construct a novel measure of firm digital transformation and examine its effect on the risk of stock price crash. We find that firm digital transformation significantly affects the risk of stock price crash. We then show that information asymmetry and firm performance are underlying mechanisms. Further, heterogeneity analyses show that the ownership and the degree of technology moderate our findings. This paper provides policy implications on the development of digital economy and capital markets.